Judge delivers blow to Apple in e-books conspiracy case

Apple has been dealt a blow in the legal row over whether it fixed the price
of ebooks, after a US judge said there was strong evidence that the
technology giant was involved in a conspiracy with publishers.

Apple has been investigated by the US Department of Justice over e-books and is due to be brought to trial early next month.Photo: Getty Images

The iPad maker was accused of colluding with five publishing companies to artificially inflate the price of ebooks in 2010, as it battled to loosen the stranglehold that Amazon’s Kindle had on the market.

Apple has been investigated by the US Department of Justice, and is due to be brought to trial early next month.

However, in a highly unusual move, the judge overseeing the trial, US District Judge Denise Cote, has discussed the likely outcome before it has got underway.

"I believe that the government will be able to show at trial direct evidence that Apple knowingly participated in and facilitated a conspiracy to raise prices of e-books, and that the circumstantial evidence in this case, including the terms of the agreements, will confirm that," she said on Friday.

Judge Cote stressed that her view was not final and that she has not yet read all the evidence, but her comments will heap pressure on Apple, which has consistently rejected the allegations it was involved in price fixing as “simply not true”.

Orin Snyder, a lawyer for Apple, said in a statement: "We strongly disagree with the court's preliminary statements about the case today."

The Department of Justice’s file against Apple includes a damning email from Steve Jobs, its now-deceased founder, to James Murdoch, the deputy chief operating officer of News Corporation, whose HarperCollins book operation was one of the publishers accused of collusion.

Setting out the choices HarperCollins faced, Mr Jobs told Mr Murdoch: “Throw in with Apple and see if we can all make a go of this to create a real mainstream, ebooks market as $12.99 and $14.99.”

The alternative would be for publishers to “keep going with Amazon” and watch their slice of the profits from ebooks become smaller and smaller over time. “You will make a bit more money in the short-term, but in the medium term Amazon will tell you they will be paying you 70pc of $9.99,” Mr Jobs said.

Publishers were seriously concerned that Amazon was pricing ebooks too low, putting a serious dent in their balance sheets and setting consumer expectations so that it would be virtually impossible to raise prices again in the future.

They were also worried that Amazon, which has around 70pc of the ebook market in Britain, would have publishers over a barrel should it want to demand better terms in the future.

They attempted to defend their position by introducing the controversial "agency model" of pricing, proposed by Apple, which effectively allowed publishers to dictate the charge for each ebook as long as the retailer gets 30pc of the profits.

According to DoJ filings lodged in a Manhattan court, the chief executives of Hachette, HarperCollins, Penguin Group, Simon & Schuster and Macmillan met for a series of dinners in the private room of an upmarket New York restaurant during 2008 and 2009, to discuss “business matters”.

On a separate occasion, they were joined by a sixth publisher, and specifically discussed the growth of ebooks and complained about Amazon’s role in that growth”, it was alleged.

Not long after the dinners, in 2010, all five publishers signed up to the scheme proposed by Apple.

Apple claimed the arrangement was designed to break Amazon’s “monopolistic grip” and that the ipad’s bookstore “fostered innovation and competition”.

However, the arrangement has sparked controversy and legal battles on both sides of the Atlantic.

The European Union opened an investigation into anti-competitive behavior, which all of the parties eventually agreed to settle.